Decentralization and Government Provision of Public Goods: The Public Health Sector in Uganda (Draft)

Abstract:
While many developing countries have devolved health care responsibilities to local governments in recent years, no study has examined whether decentralization actually leads to greater health sector allocative efficiency. This paper approaches this question by modeling local government budgeting decisions under decentralization. The model leads to conclusions not all favorable to decentralization and produces several testable hypotheses concerning local government spending choices. For a brief empirical test of the model we look at data from Uganda. The data are of a type seldom available to researchers -- actual health budgets for the health sector in a developing country. The health budgets are disaggregated into specific types of activities based on a subjective characterization of each activity's "publicness." The empirical results provide preliminary evidence that district planners are allocating declining proportions of their budgets to public goods activities. They also provide strong support for the hypothesis that spillover effects cause spending on public goods in one district to reduce spending on public goods in neighboring districts.

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